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Lobster Exploding in China

There are a lot of incredible facts about China’s economy. That they used more concrete between 2011 and 2013 than the U.S. did in the entire 20th century, for instance. Or that the government plans to lay off five to six million workers from state industries in the next two to three years. But here’s a fun Maine-related fact best expressed in a chart:

In five years, China has gone from importing almost no lobster from the U.S. to being the second-largest destination for U.S. lobster after Canada.

For a fun fact, there’s a lot to unpack. To start with, it is worth remembering that China, despite its astronomical growth over the previous three decades, is not a very rich country overall. Its GDP per capita is only about $7,500 according to the World Bank, about 14% of the U.S.’s $54,600 GDP per capita. However, given that the country has 1.3 billion people, there are still hundreds of millions of people in what is considered “middle class”.

Last year there was a flurry of articles about this explosion in U.S. lobster exports to China. Beginning with an AP story on the issue, they all point to the rise of China’s middle class as the driver of this demand. There are reasons why this makes sense. In addition to the general fact that incomes are rising so people are more able to buy luxury foods, Australian rock lobster, which is seen as the real prize of lobsters in China, is potentially hundreds of dollars more expensive than American lobster. That price would seem prohibitive to the new middle class. (While I personally think any lobster without claws, like the Australian rock lobster, is a waste of a crustacean, there’s no accounting for culture.) American lobster is cheaper and therefore more accessible.

But I think the idea that the Chinese middle class is driving this demand misses the mark. “Middle class” in China is not all that swanky and American lobster is still not cheap. What consulting firm McKinsey defines as the “mass middle class” has annual incomes between $9,800 and $17,500 (in 2016 dollars). Last year a lobster was going for between $50 and $100 at restaurants in China. We’ll give these articles the benefit of the doubt and say that the dollar figure did not take into account that you can buy more goods with less money in China (i.e. it didn’t account for purchasing power parity). In that case, the price of a lobster would be functionally equivalent to $30 to $60 in the U.S. Say for a minute that you’re someone roughly in the middle of the middle class income band, taking in $14,000 a year, or $1,166 a month. Would you spend even $30—over 2.5% of your monthly income—on a single lobster? To put that proportion in U.S. middle class terms, that’s like making $50,000 a year and paying almost $110 on a lobster. Not an entire meal. One lobster.

Even assuming that the burgeoning Chinese middle class are financial masochists, there is another interesting quirk in the numbers. It was also reported that Hong Kong saw an enormous growth in U.S. lobster imports along the same scale as China’s. In fact, it was even larger, proportional to the size of the economy. Hong Kong has been quite wealthy for a relatively long time, so there is no bubbling middle class to explain the lobster boom.

One other piece to mention here is that prices of Australian rock lobster, the more expensive lobster, are only on an upward trend. This means that demand is still up, so U.S. lobster has likely not been replacing Australian lobster in China, only adding to it.

I think all that’s happening here is that, in China, the number of wealthy families is growing and the wealthy are getting wealthier. It is more due to the upper class than the middle. Maine’s largest export has long been considered a luxurious dish outside of New England, and China’s rich are catching on. The number of wealthy families in China is growing substantially, and McKinsey offers an insight about these new members of the upper crust that is telling:

Because they are newer to the consumer market and to wealth, they are less knowledgeable about luxury brands. In addition, China’s wealthy value the functional benefits of any particular purchase (the quality, material, design, or craftsmanship, for instance) more than wealthy consumers elsewhere do.

My guess is that the newly moneyed want to have lobster, but see the astronomical price of Australian rock lobster—the original “luxury brand” of lobster in China—and decide that American lobster will do. That would mean the culture is becoming more receptive to the food as a status symbol, and that’s compounding with the increasing numbers of wealthy people to fuel the intense growth of American lobster imports. The culture change component would easily carry over to Hong Kong.

The increase in Chinese lobster consumption is certainly good for Maine producers. A large foreign market can help level out swings in demand from the U.S. business cycle. And if Chinese consumption continues to rise at this rate, lobster prices could stay up and the Canadian lobster processors that currently take a huge amount of Maine’s lobster catch may have reduced pricing power. They’ll have China’s rich to thank.

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About Phoenix McLaughlin

Phoenix McLaughlin works at the National Endowment for Democracy helping to foster political development in Asia. Phoenix lives in Washington, D.C. now, but was born and raised in Norway, Maine. In between, he has studied and/or worked in Colorado, Nepal, India, France, Ethiopia, and Augusta. All opinions expressed on this blog are solely his own and do not represent his current or former employers.

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Phoenix McLaughlin

Phoenix McLaughlin works at the National Endowment for Democracy helping to foster political development in Asia. Phoenix lives in Washington, D.C. now, but was born and raised in Norway, Maine. In between, he has studied and/or worked in Colorado, Nepal, India, France, Ethiopia, and Augusta. All opinions expressed on this blog are solely his own and do not represent his current or former employers.